Can Interest Be Charged Without a Contract?

Interest Clauses Must Be Agreed to When Making a Contract. A Business is Unable to 'Sneak' Interest Charges Onto an Invoice Without Prior Agreement. Interest Must Be Shown as an Annual Rate and Be Under Sixty (60%) Percent.

A Helpful Guide on How to Determine Whether An Interest Charge Is Legal and Enforceable

When a business imposes an interest charge by adding the interest charge on an invoice without previous discussion and agreement regarding the potential interest charge, this unilateral, meaning single-sided, decision is improper, contrary to basic principles of contract law, and is therefore unenforceable. Simply stated, an interest charge is invalid unless the customer agreed when the deal was made that an interest charge may arise for late payment of an account. This was said very clearly within the case of King Road Paving and Landscaping Inc. v. Plati, 2017 ONSC 557 at paragraphs 79 to 88.

What Happens If An Interest Rate Is Shown Only As a Monthly Rate Rather Than Annualized Rate?

If An Interest Rate Is Shown Without An Annualized Rate, Then the Interest Charge Becomes Void.

For most contracts involving the sale of goods and services (i.e. other than mortgages) where an interest rate is stated as applying to late payment or overdue accounts will require that the annual interest rate be shown. The mandate to show an annual interest rate is found in s.4 of the federal Interest Act, R.S.C. 1985, c. I-15. In circumstances where an interest rate that is less than annual is shown, such as a two (2%) percent monthly interest charge, without also stating the annual interest rate, such an agreement is void and unenforceable.

The Interest Act also governs the interest rate that applies if an agreement for interest is made but the rate of interest undeclared. In such a situation, the Interest Act statutorily establishes a five (5%) annual rate. Counter-intuitively, many perceive that where a lesser rate is stated without the annualized rate such as the example of two (2%) percent mentioned above, this unenforceable rate should be substituted with the statutory five (5%) percent rate; however, the law will not operate in such a manner as to amend or adjust the defective rate of interest stated in the contract. The law within the Interest Act only establishes the rate at five (5%) percent when interest was agreed to but the rate unstated. Accordingly, in a situation where a rate is stated without the annualized interest rate, any interest becomes disallowed.

How Much Interest Is Too Much Interest?

An Interest Charge of Sixty (60%) Percent or Higher Is Illegal.

Additionally, even if stated 'correctly' as an annualized interest rate, any interest rate charged beyond sixty (60%) percent annual runs contrary to s.347 of the Criminal Code of Canada, R.S.C. 1985, c. C-46 and may be punishable by five (5) years imprisonment as an indictable offence or six (6) months imprisonment and/or twenty five thousand ($25,000) dollar fine as a summary conviction offence. Lately, much legal news has come from concerns involving the fees and other charges as charged by pay day loan businesses and whether such fees are merely interest charges in disguise and if such are interest charges in 'disguise' whether such amounts to criminal activity when calculation of such interest charges in 'disguise' establishes a rate beyond sixty (60%) percent. These payday or short-term loan businesses are regulated per the Payday Loans Act, 2008, S.O. 2008, Chapter 9. The decision in the case of The Director v. The Cash Store, 2014 ONSC 980 has helped define some of the parameters established by this law.

Summary Comment

Attempts to add an interest charge onto an invoice without first having first arranged an agreement to charge interest is improper and unenforceable. Furthermore, an interest clause must show the agreed upon interest rate as an annual rate, or include an annualized rate if a monthly rate is shown, and the annualized rate must be less than sixty (60%) percent.

For more information, fill out the form below to send a direct inquiry to SFG Paralegal Services

Full Name:

Email Address:

Phone Number:

Message:

ATTENTION: Confidential details about your case must not be sent through this website. Use of this website
does not establish a legal-representative/client relationship. Do not include confidential details about your case by email or phone.
Use this website only for an introduction with a SFG Paralegal Services representative.

Dan took time out of his busy day to come to my office and discuss matters with my partner and I as we both can't leave the office ... I'm looking forward to dealing with Dan and his team and I feel we are going to get 120% professional service.
~ Matthew Ber

Service Within:

SFG Paralegal Services is a Paralegal entity operating/marketed brandname, and is licenced by the
Law Society of Ontario
to provide legal services addressing particular legal issues
within the permissible scope of the licence of a licensed Paralegal; and
which to some measure, may involve
Contract Law, Provincial Offences, Business & Commerce, Construction Law, Employment Law, Tort Law, Residential Tenancies, Advertising Law, Insurance Law, Consumer Law, and Human Rights issues,
within the Province of Ontario, Canada.

Warning & Waiver: Information provided within this website is for general information purposes only, it is not to be
relied upon as legal advice, and it barely begins to scratch the surface of the subject. Contacting SFG Paralegal Services
through this website does not establish any relationship/retainer. Never send confidential details about your specific
legal matters until a relationship/retainer has been formally arranged. Always seek a review of your individual circumstances
from a qualified legal professional. By using this website, you acknowledge and accept this warning, and agree to waive all
liability for use of any information herein.